This most likely comes from the Unit being banned before the sale, which would also explain why it was sold. You will need to contact Xbox Live customer support to find out what your options are. They may be able to clear the block in the system, but if the Xbox has been modified (which is a big reason consoles get banned), you may have to take it in to a service dept to correct the issue.
Sounds like the system has been modded....and somebody got online with it...
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